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May 31, 2006

Enron Broadband jury splits the baby

The jury in the first re-trial of the Enron Broadband case that ended in a mess of acquittals and a mistrial last year convicted former EBS CFO Kevin Howard (picture on the left) this afternoon on all five counts -- three counts of wire fraud, two counts of falsification of books and records and conspiracy to falsify books and records. Howard's co-defendant -- former EBS accountant Michael Krautz -- was acquitted on all counts. The previous posts on this case are here, including this recent one on the closing arguments of the trial.

U.S. District Judge Vanessa Gilmore scheduled sentencing for the morning of September 11, 2006, the same day on which former key Enron executives Ken Lay and Jeff Skilling will be sentenced by U.S. District Judge Sim Lake on the same floor of the Federal Courthouse in downtown Houston. Howard faces possible penalties of five years in prison on the conspiracy charge and each of the three wire fraud counts, and 10 years on the falsification of books and records count.

Given the unavoidable torrent of adverse publicity regarding all things related to Enron that has occurred since the Lay-Skilling jury returned its verdict last Thursday, it's highly unfortunate that the re-trial of Howard and Krautz was not postponed until a reasonable period of time had passed after the completion of the Lay-Skilling trial. The freedom of a 43 year-old family man and father of two young children now hangs in the balance of that dubious decision.

Posted by Tom at 2:17 PM | Comments (0) | TrackBack (1)

The storms of Katrina

With hurricane season officially starting tomorrow, this NY Times article about the research that has been done over the past year into Hurricane Katrina provides some interesting information, including the stages of the storm on the New Orleans metro area:

The first stage of Hurricane Katrina touched Louisiana as it passed south of the city in the Plaquemines Parish town of Buras with winds of more than 125 miles per hour pushing a storm surge. The wind and water overwhelmed the local hurricane defenses: levees built to withstand 13 feet of water were overwhelmed by more than 17 feet of surge, damaging levees and scattering homes and boats across the thinly populated parish like toys.

As the hurricane moved across Lake Borgne to the east, the effect was quite different: the second storm sent strong waves and a surge estimated at 18 feet or more back across the lake to the levees bordering St. Bernard Parish. The long levees there had been designed to handle 13 feet of water. The assault washed over Chalmette and other communities with floodwaters exceeding 14 feet in some areas. A similar pounding took out the southeastern levee of the development known as New Orleans East.

In its third incarnation, the storm sent the water up a funnel formed at the northwest corner of Lake Borgne and into the city's Inner Harbor Navigation Canal, where the water rose and churned with exceptional force, said Hassan Mashriqui, a researcher with the Louisiana State University Hurricane Center. Those waters shattered flood walls in several places and destroyed the city's Lower Ninth Ward.

As the storm pushed into Mississippi, it sent a final surge toward New Orleans across Lake Pontchartrain, north of the city. As the water stacked up against the south shore of the lake, it rose against the walls of the three main drainage canals that run from the center of the city. Though the surge was weaker than the others and the water did not reach the tops of the flood walls, the 17th Street Canal and the London Avenue Canal suffered breaches that caused the lake's waters to spill into the center of the city.

The NY Times article coincides with my reading over this past weekend of Douglas Brinkley's new book on Hurricane Katrina and New Orleans, The Great Deluge : Hurricane Katrina, New Orleans, and the Mississippi Gulf Coast (William Morrow 2006). Brinkley's book provides mounds of information, but is not particularly well-written, as reviewer Wilfred M. McClay notes in this blistering review:

Let me confess that I haven't read all of the writings of Douglas Brinkley. I doubt that anyone -- perhaps not even Mr. Brinkley himself -- has ever done that. He is a veritable ... deluge of literary productivity, with books to his credit on a dizzying array of subjects, ranging from Beat poetry to Jimmy Carter, and from Henry Ford to, most recently, the failed Democratic presidential candidate John Kerry. Indeed, the range of his literary productions is so wide as to seem indiscriminate. But his bestknown writings seem to have three things in common.

First and foremost is their relentless mediocrity. I cannot think of a historian or public intellectual who has managed to make himself so prominent in American public life without having put forward a single memorable idea, a single original analysis, or a single lapidary phrase -- let alone without publishing a book that has had any discernable impact. Mr. Brinkley is, to use Daniel Boorstin's famous words, a historian famous for being well-known.

By the way, on pp. 14-25 of the book, Brinkley notes the Houston Chronicle's fine science writer Eric Berger and his landmark December 2001 Chronicle story in which Eric predicted the dire impact of a storm such as Katrina on the New Orleans metro area. Eric began blogging at the beginning of the hurricane season last year, and he and I crossed paths as we encouraged New Orleans residents to evacuate on that fateful Saturday before Katrina hammered the upper Gulf Coast even as New Orleans Mayor Nagin continued to delay calling for a mandatory evacuation. Eric's blog became one of the "go-to" sources of information during last year's historic hurricane season, and that experience made me a regular reader of his blog and writings. I have not come across a better blog on science matters for laypersons than Eric's.

As with the Chronicle's recent innovative coverage of the Enron-related trials, Eric's blog is another example of the Chronicle's trendsetting initiative -- inspired by the Chronicle's fine technology writer, Dwight Silverman -- in blending traditional news reports with blogging to change the way in which major news events are covered. Houstonians tend to take the local daily for granted from time to time, but we should all appreciate the Chronicle's willingness to embrace this innovation that has dramatically improved the delivery of important information to citizens.

Posted by Tom at 5:10 AM | Comments (0) | TrackBack (0)

The law clerks of SCOTUS

The ubiquitous Richard Posner reviews in this New Republic Online article (free registration req'd) two new books about the law clerks of the United States Supreme Court -- Courtiers of the Marble Palace: The Rise And Influence of the Supreme Court Law Clerk (Stanford 2006) and Sorcerers' Apprentices: 100 Years of Law Clerks at the United States Supreme Court (NYU Press 2006) -- which provide a glimpse of how the modern Supreme Court operates. It's an entertaining and informative review, reflected by the following blurb:

Except for Justice John Paul Stevens, who writes his own first drafts of opinions, law clerks write the first drafts of their justices' opinions. (According to Courtiers, Stevens's clerks rewrite his drafts extensively, thus producing an inversion of the normal relation of clerk-author to justice-editor. In another inversion, Justice Harry Blackmun, a genuine eccentric, left the opinion-writing to his clerks after his first years on the Court and concentrated on cite-checking their drafts. He was by all accounts an awesome cite-checker.) Some justices rewrite the clerks' opinion drafts extensively, others little. Sorcerers' Apprentices estimates that 30 percent of the opinions published by the Supreme Court are almost entirely the work of the law clerks; and as they are the primary drafters of most of the other opinions as well, probably more than half the written output of the Court is clerk-authored.

Judge Posner is particularly interested in whether the elaborate Supreme Court law clerk system has actually resulted in improvement in the quality of the Court's decisions:

[O]ne can apply quality-related criteria, such as clarity, brevity, guidance provided to the lower courts, and candor in explaining the true grounds of decision, to the opinions in the two eras.

When one does this, one is not likely to find a dramatic, or perhaps any, overall difference in quality. Today's opinions are longer--a dubious virtue. There are more separate opinions, most of which are ephemeral. Today's opinions are more polished, more "scholarly," and more carefully cite-checked, but these are modest virtues. Neither judges nor their clerks are scholars. The scholarly apparatus of judicial opinions belongs to the rhetoric rather than the substance of judicial decision-making.

Read the entire review.

Posted by Tom at 4:39 AM | Comments (0) | TrackBack (0)

May 30, 2006

Monday morning QB'ing the Lay defense

Yes, it's Tuesday, but the Monday morning quarterbacking on the failed defense of Ken Lay is in full swing.

Donald Watkins, an Alabama-based lawyer who headed up the defense team that handled the successful defense of former HealthSouth CEO, Richard Scrushy, says the following about the Lay defense:

In an interview following the Enron trial, Watkins called Lay's strategy wrong from the start because the former Enron CEO began his defense by hiring a team of big-name trial lawyers. What Lay needed first, Watkins says, was a strategist with a broader view of what was needed to keep such a high-profile defendant out of prison.

"Lawyers are technicians," Watkins says. "They're like painters, plumbers and sheet-rockers."

Frankly, although somewhat interesting, Watkins' views should be taken with a rather large grain of salt. First, Lay did not hire a "team of big-name trial lawyers." Mike Ramsey -- Lay's lead attorney -- has a good local reputation as a criminal defense attorney, but is hardly close to a "big-name" trial lawyer in Houston or anywhere else. No one else on the Lay team comes close to having that reputation, either.

Moreover, although similarities exist, all big business criminal cases have significant differences. HealthSouth did not experience anywhere near the societal and media demonization of Enron, which made Lay's public relations problem much more difficult than Scrushy's. Moreover, under the circumstances of Lay's case, Lay's defense had to be far different from Scrushy's, who relied on the "honest idiot" defense and did not testify during his trial. In contrast, the jurors to a person in the Lay trial stated post-trial that they expected Lay to respond to the testimony of prosecution witnesses against him, signaling that they would have crucified him if he had not testified. Thus, the fact that Lay was not particularly effective in defending himself while testifying does not mean that it was a mistake to put him on the stand.

In short, different circumstances call for different strategies. The fact that Watkins' strategy worked in the Scrushy case does not mean that the same strategy would have worked in the defense of Lay. However, his success in the Scrushy case does provide a nice perch from which to Monday morning quarterback.

Posted by Tom at 8:10 AM | Comments (2) | TrackBack (0)

Lessons from an Enron short

Jim Chanos is a well-known investor and investment advisor who specializes in shorting stocks -- one of his most famous shorting targets was Enron back in 2001.

Making money by selling stocks short is most often accomplished through the process of borrowing stock, selling it, and then covering the loan of the stock at maturity by purchasing the stock in the market later at a lower price. The process is often criticized by the short seller's target because it generates profits from misfortune (i.e., when the target company's stock price goes down) and is counter-intuitive to the usual way folks make money on investments -- that is, holding stocks long-term as they appreciate in value. Nevertheless, the practice provides a valuable market purpose in hedging risk and, thus, is a component of any well-structured securities market.

In this Wall Street Journal ($) op-ed, short-seller Chanos provides the following ten lessons (without Chanos' explanation for each rule that is provided in the article) on the Enron saga:

1. The Enron scandal shows a need for a standards-based accounting system, rather than a rules-based one.

2. Mark-to-Market accounting was not the problem at Enron, Mark-to-Model was.

3. Off-balance-sheet deals and entities are "off" the balance sheet for a reason.

4. Wall Street analysts don't "do" complex.

5. The rating agency system breaks down when most needed. Rely on it at your own peril.

6. Beware of, and question, unexpected executive resignations.

7. Whistleblowers aren't whistleblowers if they blow their whistles inside the company walls (note: Chanos is referring to this).

8. Special investigations by corporate boards are almost always a waste of time/money, and often prove highly misleading.

9. Character cannot be compartmentalized.

10: Friends do not let (possibly guilty) friends take the stand in criminal trials.

Read the entire op-ed. Probably because Chanos did not actually read Lay and Skilling's testimony about Enron's short sellers, his comments regarding the extent to which the Lay-Skilling defense strategy relied upon short sellers in explaining Enron's demise reflects the generally overblown nature of the media's reporting of that testimony. Nevertheless, Chano's rules are helpful reminders of the myth that underlies much of American securities regulation and prosecutions such as the one against Lay and Skilling. As noted several times previously on this blog, investing heavily in a company such as Enron without a corresponding hedge is akin to playing the slots in Las Vegas. You can win big, but you can also lose big. The difference is that we don't generally create morality plays to assuage folks who gamble away their money in Las Vegas, and we don't prosecute the casino owners, either.

Posted by Tom at 6:18 AM | Comments (2) | TrackBack (0)

What might have been

In a development that drips with irony on the heels of last week's jury verdict in the Lay-Skilling trial, Houston-based Kinder Morgan, Inc. announced that its management team -- led by Kinder Morgan CEO and former Enron chief operating officer, Richard D. Kinder -- is proposing to take the oil-and-gas pipeline powerhouse private in a $13.5 billion deal that would be the largest management-led, leveraged buyout in American business history.

Any further question that the public company model is looking less attractive to private ownership as a means to building owner wealth in the post-Enron era? Chalk up a good portion of that development as another cost (among the many others, as Larry Ribstein notes) of demonizing Lay and Skilling, as well as everything having to do with Enron. Remind me again -- the purported purpose of these prosecutions was to protect investors in public markets?

At any rate, Kinder and other KM executives are planning on contributing $2.8 billion of their existing shares to the newly private company, and private-equity investors Goldman Sachs Capital Partners, American International Group Inc. and the Carlyle Group would contribute another $4.5 billion. The new private company would take on a total of $14.5 billion in debt, which means that the transaction has a total value of around $22 billion. Kinder and other KM executives are offering $100 a share for the company, which is about an 18% premium on Friday's New York Stock Exchange closing price of $84.41. The 52-week high for KM shares is $103.75.

The irony of the deal is that KM is largely the result of a combination of Kinder's talent and Ken Lay's choice. Back in 1996, Lay and the Enron board were attempting to choose between Kinder and Jeff Skilling to replace Lay as chief executive in running Enron's day-to-day operations. Lay chose Skilling, so Kinder left and began KM with about $40 million in primarily pipeline assets that he bought from Enron as a part of his severance deal. Under Skilling, Enron embraced a business model based primarily on what became a huge trading operation, while Kinder built a formidable portfolio of stodgier, but increasingly valuable, oil and gas pipeline assets at KM.

KM has been fabulously successful. Since 1999, KM's share price has increased over 150% through an aggressive expansion of the company's business in both the U.S. and Canada and the company currently transports more than two million barrels of gasoline a day through 43,000 miles of pipelines, manages over 80 million tons of coal each year, owns huge terminals for distributing oil and gas and oil-sands assets in Alberta, Canada and stores about 75 million barrels of oil and chemicals. As a result, Kinder has become one of Houston's wealthiest business executives -- his 18% stake in KM is worth around $2.4 billion based on Friday's closing KM share price.

Thus, KM's success provides one of the most interesting "what if's" of the Enron saga. What if Lay and the Enron Board had chosen Kinder over Skilling and spun off Enron's trading operation to Skilling in a similar manner to the way in which Enron provided Kinder with the base assets he used in starting KM?

As this earlier post alluded, my sense is that Kinder would have steered Enron to success as a KM-type pipeline company, albeit probably not as successful as KM, which was never hindered by Enron's less-successful business ventures. Meanwhile, I believe Skilling would have enjoyed the same type of success in building a spin-off trading company that Kinder has enjoyed in building KM. Indeed, with the benefit of 20-20 hindsight, Skilling seems like the type of fellow who would have been much more fulfilled in building an Enron spin-off into a trading powerhouse than he was in dealing with many of Enron's far-flung business operations that he neither created nor thought were particularly important to Enron's success.

Amidst the current demonization of Lay and Skilling, most folks largely overlook the fact that Lay probably would not have been indicted at all if he had declined the Enron Board's request that he replace Skilling as Enron CEO when Skilling resigned unexpectedly in August, 2001. What is ignored even more is that the entire Enron saga would almost certainly not have occurred at all had Lay made the better choice ten years ago.

Posted by Tom at 4:26 AM | Comments (2) | TrackBack (0)

May 29, 2006

Garner said what?

My latest Stros review noted Stros skipper Phil Garner's limitations as a big-league manager. A reader asked me to elaborate.

First, let me be clear that I like Garner. He is a genuinely nice man and he represents the Stros well. He's not the worst recent Stros manager by any stretch of the imagination (remember Jimy Williams?). He is just not as good a manager as Larry Dierker.

Apart from allowing the odious Mike Gallo (5.74 ERA/-3 RSAA) and Trevor Miller (4.63 ERA/0 RSAA) to be on the same pitching staff together, Garner gave us a good example of his limitations in the following recent Chronicle blurb regarding two of the Stros' underachieving outfielders, Preston Wilson and Jason Lane:

For those fans wondering why Phil Garner is giving Preston Wilson steady playing time and sitting Jason Lane, Garner mentions Wilson's track record as a major-league run producer.

In contrast, Lane has been a major-league starter for only one season.

"I'll give him every chance I can to get on a roll," Garner said of Wilson, who responded Thursday by going 4-for-5 with a double, two runs, an RBI and two stolen bases. "He's been a productive player. I'll give him every chance I can to keep being a productive player."

So, Garner prefers Wilson over Lane because of "Wilson's track record as a major-league run producer." There is only one problem with that analysis.

It's wrong.

Wilson, who is almost 32 and became a regular National League player at the age of 24, has been a below-average National League hitter and run producer for his entire MLB career -- he has scored 17 fewer runs than an average National League player would have during the time Wilson has been an MLB player (RCAA, explained here). Wilson has been a below-average run producer while possessing a below-average .331 on-base average, an above-average .473 slugging percentage and an above-average .805 OPS (i.e., on-base average + slugging percentage).

Meanwhile, Lane, who is 29 and has been a regular National League player for one season, has been an above-average National League run producer for his two full major league seasons. He has a 14 RCAA while generating a below-average .328 on-base average and an above-average .488 slugging percentage and .816 OPS.

Moreover, even though Lane and Wilson are not having good seasons to date this year, Lane is clearly better than Wilson. Lane's RCAA this season is -2 and he has an above-averge .341 OBA, although his slugging percentage and OPS are below-average at .431 and .771. In 191 plate appearances, Lane has made 129 outs and generated 31 hits, including 9 yaks and 4 doubles, while taking 32 walks, second on the club to 3B Morgan Ensberg. Lane has struck out 32 times and grounded into one double play.

In comparison, Wilson's RCAA this season is -7 and his other numbers are equally atrocious -- a .305 OBA, a .392 SLG, and a pathetic .697 OPS. In just 12 more plate appearances than Lane, Wilson has already made 19 more outs (second on the club only to the equally ineffective-hitting Taveras) while generating 51 hits, only 11 of which have been for extra bases (including five yaks). Wilson has drawn only 9 walks, which is the worst on the team among regular players, and his 56 strikeouts leads the team by far. One good thing about Wilson's high strikeout rate is that at least it keeps him from hitting into double plays, which he has already done five times this season.

In addition to all that, Lane is a clearly superior defensive player to Wilson.

Consequently, Garner favors a less productive singles hitter (Wilson) over the slumping but more productive power hitter (Lane) because of the myth that Wilson is a "proven Major League run producer.' Inasmuch as I do not believe Garner is a disingenuous man, my sense is that he truly believes that Wilson has been the more productive player. That he doesn't understand that Lane has clearly been the more productive player reflects one of Garner's limitations as a manager -- relying on myths rather than analyzing performance accurately.

Jimy Williams' disastrous decision to platoon the extraordinarily productive Ensberg with the notoriously unproductive Geoff Blum during the 2003 season may well have cost the Stros a playoff berth that season (the Stros finished one game behind the Cubs that season in the National League Central race). The difference in productivity between Lane and Wilson that Garner faces is not as great as the difference between Ensberg and Blum that Williams faced in 2003, but -- particularly in a close race for a playoff berth -- these types of managerial mistakes can make a difference.

Posted by Tom at 10:10 AM | Comments (0) | TrackBack (0)

Maggert breaks through at Memphis

My neighbor in The Woodlands, Jeff Maggert, shot a 31 on the back nine yesterday of the TPC Southwind Golf Course in Memphis on his way to a final round, five-under-par 65 and his first PGA Tour win in seven years. Maggert's 72-hole winning score of 271 won the Fed Ex St. Jude's Tournament by three strokes.

Maggert is an interesting fellow. A 42 year-old graduate of Texas A&M, he has an impeccable swing, has played on three Ryder Cup teams (1995, 97, and 99) and has often been in contention in major championships over his 15 year PGA Tour career. However, his three career wins seem somewhat low for a player of his talent, although his streaky putter probably explains much of that.

He has never finished a season outside the top-125 money list during his 15 years on the Tour, but Maggert finished 106th last season and, until yesterday, appeared to be on his way to having his worst year on the Tour. For the year, he had won less than $300,000, missed the cut in his previous three tournaments and in five of the 13 tournaments that he had played in this year, and was 118th on the money list. So, yesterday's victory was particularly welcome, given that it vaulted Maggert to around $1,235,000 in winnings for the year, good for 26th on the money list. Another year, another top-125 finish for Maggert.

By the way, as the father of four teenagers, one of the things I admire most about Maggert is that he is the father of five children, several of whom are teens. He understands the importance of being around for them and his wife, so he does an excellent job of balancing his life on the Tour with his family responsibilities in The Woodlands. Thus, as the rest of the Tour players will be playing in the Jack Nicklaus' Memorial Tournament in Ohio this coming week, Maggert will be knocking it around the local courses with his children and not missing the Tour a bit.

With those priorities, my sense is that we will continue to see Jeff Maggert's name popping up on leaderboards from time to time. Just not all the time.

Posted by Tom at 6:10 AM | Comments (0) | TrackBack (0)

May 28, 2006

Administrative note

I've had to turn off comments for awhile because of an extensive spam attack. I will turn the comment feature back on once I've figured out how to stem the attack, which should be shortly.

Inasmuch as I moderate comments, none of the spam makes it on to the blog site, but it's still easier simply to turn off the comment feature while modifying the spam defenses to deal with the attack.

It's always something.

Update: I've decided to require TypeKey authentication for comments. I would have preferred not to do so, but authentication provides a strong component in the defense against comment spam. I hope the nominal registration requirement for authentication is not too much of a bother. Thanks for the patience.

Posted by Tom at 4:24 PM | Comments (2) | TrackBack (0)

Checking in on Southwest Airlines

Mitch Schnurman, the Ft. Worth Star-Telegram's business columnist, notes that low-cost airline leader Southwest Airlines is now one of the industry leaders in pilot and flight attendant compensation:

Southwest employees are also paid some of the highest salaries in the business, with pilots and flight attendants at the top of the scale.

An experienced pilot at Southwest, for example, earns 45 percent more than his counterpart at United and almost 18 percent more than at American Airlines.

It wasn't always that way. Three years ago, Southwest pilots were paid at least 20 percent less than pilots at legacy carriers. They usually made up the difference, and then some, from Southwest's profit sharing and stock options.

Then the competition began restructuring after losing tens of billions of dollars. Companies shrank, went bankrupt and cut jobs, pay and benefits. Southwest, meanwhile, continued to grow, and workers received small, steady increases, without involuntary layoffs.

If you charted the airlines' worker pay on a line graph, the lines would have crossed about 2004, with Southwest rising to the top and most of the competition heading south.

Schnurman notes Southwest chairman Herb Kelleher's line that "manage in good times as if they're bad, for the bad times will surely come" and then explains how the company has avoided the financial problems relating to employee compensation that have bedeviled the legacy airlines:

In lean times, the company's lower pay helped cushion results. But when profits soared, employees benefited as much as anyone, thanks to rich profit sharing and stock options.

In 2000, for instance, Southwest employees received 16 percent of their pay as a profit-sharing bonus. In 2004, in the midst of the industry slump, profit sharing totaled 5 percent of pay.

That's a lot less, but it's still a meaningful bump. And the payouts didn't become a permanent labor cost, as was the case with most legacy carriers. United, Delta and others signed labor contracts near the peak of the market, locking in expenses that would be difficult and painful to undo later. [. . .]

Southwest has a 401(k) plan and other savings programs, but it doesn't offer a traditional pension. That helps in managing the business, because the company pays as it goes, rather than incurring big long-term liabilities.

At legacy carriers, such pensions were a huge part of pilots' pay packages. United and US Airways dropped their pensions after filing for bankruptcy. At Delta and Northwest, the pensions are in doubt because the airlines are in bankruptcy now. . . Southwest pilots made a conscious decision to go with a defined-contribution plan so employees could get their money every year and decide how to invest it.

They saw what happened to workers at Eastern, Braniff and other carriers in the early 1980s.

"We didn't want to tie our retirement to the airline," [Southwest pilot union VP Carl] Kuwitzky said.

Another good call for the employees and a good call for Southwest.

Read the entire column and marvel at a company that establishes a sound plan and then sticks to it. Sounds simple in theory, but experience proves that it is quite difficult to achieve in practice.

Posted by Tom at 7:12 AM | Comments (0) | TrackBack (0)

May 27, 2006

Ray Nimmer named interim Dean of UH Law Center

After former University of Houston Law Center Dean Nancy Rapaport resigned under pressure recently, a friend asked me who I thought the UH Law Center should hire as the new dean. My reply: "The best replacement is already on the faculty -- Ray Nimmer."

It appears that someone may have been listening.

Earlier this week, the University announced that Professor Nimmer -- one of the most prolific legal minds in Texas -- has been named interim dean of the UH Law Center.

Professor Nimmer is one of the nation's leading authorities on business and bankruptcy law, computer information licensing, e-commerce, and related intellectual property issues, all of which are subjects that he has addressed in the 20 or so books and numerous articles that he has written over his superlative 30 year teaching career. Even more importantly, he is a gifted teacher who has taught a remarkably broad variety of courses at the UH Law Center, including Contracts, Contract Drafting, Evidence, Bankruptcy, Corporate Reorganization Law, Internet Law, Electronic Commerce, Secured Financing Law, Negotiable Instruments, Copyright Law, Information Law, Sales, and Licensing Law. Professor Nimmer's blog is here, and he comments on his decision to accept the interim appointment here.

This is Professor Nimmer's second stint as interim dean of the Law Center. Frankly, it's highly unlikely that the search committee for a new dean will find a more-qualified candidate for the permanent dean position than Professor Nimmer. Here's hoping that the search committee and the UH Board of Regents realize that and name this long-time treasure of Houston's academic community as the new UH Law Center Dean.

Posted by Tom at 8:25 AM | Comments (0) | TrackBack (0)

May 26, 2006

Stros 2006 Review, Part Three

Where have you gone, Roger Rocket?

That's the question that most Stros fans are asking at the 3/10's pole of the season (prior 1/10th of a season posts are here), but it's the wrong one. It's highly unlikely that a return of Clemens would make a viable playoff contender out of this 25-23 club, which backslid with a poor 6-10 record during the most recent 1/10th of the season after going 11-5 and 8-8 in the first two sixteen game segments of the season.

The big problem for the Stros over the past several seasons -- i.e., declining hitting production (see previous posts here and here) -- is combining with far less effective pitching than the Stros have enjoyed over the past two seasons to make this club look very much like an also-ran. Indeed, the Stros already trail the NL Central-leading Cardinals (31-16) by 6.5 games less than a third of the way through the season.

The club's hitting and pitching statistics to date are set forth below, and pdf's of the current hitting stats are here and the current pitching stats are here, courtesy of Lee Sinins' sabermetric Complete Baseball Encyclopedia:

The abbreviations for the hitting stats are defined here and the same is done for the pitching stats here.

As noted above, despite some awful pitching performances over the past 16 games, the Stros primary problem is hitting. During the moribund home series against the Giants when the Stros young starting pitchers fell apart and allowed the Giants to score 34 runs in three games, few people seemed to notice that the Stros scored a total of only five runs in those games. Then, after the Stros peppered the Nationals with nine runs in the first game of the club's most recent series, the Stros scored a total of seven runs in losing the next three games, including back-to-back one run performances. Even with above-average pitching that the Stros have enjoyed the past two seasons -- which this club does not have -- it's hard to win consistently with that type of insipid offensive output.

1B Berkman (13 RCAA/.375 OBA/.605 SLG/.980 OPS) and 3B Ensberg (20/.403/.627/1.030) remain two of the top half-dozen hitters in the National League this season and are the foundation of almost all of the Stros' run production. Although ageless 2B Bidg (1/.356/.472/.827) is having another solid season at the plate, the rest of the club's regular players are quickly becoming a collective train wreck at the plate. RF Lane (-1/.335/.411/.746) is at least remaining reasonably productive despite not hitting, but CF Taveras (-10/.322/.321/.642), SS Everett (-10/.271/.331/.602) and LF Preston Wilson (-9/.289/.384/.674) are quickly descending into the twilight zone of MLB hitting. Even over-performing C Brad Ausmus -- one of the worst hitters among regular National League players over the past decade (-203/.330/.353/.683) -- is showing signs that he is returning to his traditional hitting level after an unusually strong first 30% of the season (4/.377/.412/.789).

The club's hitting woes are exposing another of this club's weaknesses -- the questionable decisions of Manager Phil Garner. Almost a third into the season, Garner inexplicably continues to trot out Wilson rather than the more productive Chris Burke (5/.575/.413/.988), Eric Bruntlett (1/.378/.372/.750) or even Luke Scott, who is hitting .396./478/.874 at AAA Round Rock. Meanwhile, although Taveras' defense at least provides a colorable reason for playing him despite his offensive limitations (a trait that Wilson does not share), Garner doggedly continues to place Taveras at the top of the batting order despite the fact that he is quickly becoming one of the worst regular National League players in terms of producing runs. That's exactly the opposite of what you want to see out of a top-of-the-lineup hitter, and Garner's stubborn ignorance of that fact is a surefire sign that he does not have the flexibility of a top-flight manager.

Meanwhile, the pitching continues to be below average among the 16 National League teams in terms of runs saved against average (RSAA, explained here), which is a decided downturn over the Clemens-led staffs of the past two seasons. Beyond Roy O (3.36 ERA/8 RSAA), no pitcher on the staff has been particularly consistent, although almost all of them have had their moments when they have been effective. Despite the speed bump of the recent home series with the Giants, Buchholz (4.35 ERA/ 0 RSAA) and Rodriguez (3.88 ERA/3 RSAA) continue to pitch reasonably well for young starting pitchers, and even the less effective Nieve (5.36 ERA/-5 RSAA) had a reasonably strong outing against the Nationals the other day.

However, veteran starter Pettitte (5.76 ERA/-11 RSAA) continues to struggle mightily this season after having the best season of his career last season and most of the rest of the staff has been an accident waiting to happen, particularly troubled closer Brad Lidge (6.53 ERA/-5 RSAA), who is currently the second worst pitcher (after Pettitte) on the staff in terms of runs saved against average. With two spots in the bullpen manned by the ineffectual Mike Gallo (5.54 ERA/-2 RSAA) and Trevor Miller (6.23 ERA/-2 RSAA), this staff does not come close to the depth and overall strength of the staffs of the past two seasons. Such downturns sometimes happen to pitchers, whose performance (outside of the top pitchers such as Oswalt and Clemens) is generally far more prone to broad swings in productivity from season to season than hitters normally experience.

Which brings us back to my point about Clemens. Although it's unrealistic to expect the Rocket to perform at the extraordinary levels that he produced over the past two seasons, my sense is that his contribution to this club would still be an improvement over Nieve in the starting pitching rotation. Based on a reasonable expectation of productivity, that change in the pitching staff (including moving Nieve to the bullpen and dispensing with a less productive pitcher) would probably save the Stros 10-20 runs over the remainder of the season. While a considerable improvement over current pitching performance levels, that's not close to being enough runs to push this club into contender status without a big productivity turnaround in hitting (not likely) or pitching (more likely, but not probable).

Thus, the next tenth of the Stros season will likely determine whether the club can remain in the race for a playoff spot. After a series in Pittsburgh against the hapless Pirates (14-33), the Stros play the Cardinals in St. Louis, then the Reds (27-20), the Cubs (18-28) and the Braves (24-23) at Minute Maid Park. Absent a turnaround from the current downward trend -- which is not helped by the fact that Berkman will be out for a few days after hyperextending his right knee -- the Stros may find themselves being in the unusual position (for them) of playing out the string by mid-June.

Do you think that the Rocket really wants any part of that?

Posted by Tom at 5:00 AM | Comments (3) | TrackBack (0)

Lay-Skilling, Week Seventeen

Remember that point made in the previous week summaries about the predisposition of the leaders on the jury determining the outcome of the trial of the corporate criminal case of the decade?

Well, in a strong indication that this trial was already over after the jury was selected, the jury in the Lay-Skilling trial concluded its relatively short deliberation (less than five days) before the long holiday weekend and returned a verdict of guilty on most counts against the two key former Enron executives. The jury convicted former Enron chairman Ken Lay on all six conspiracy, wire fraud and securities fraud charges, and then U.S. District Judge Sim Lake piled on by finding Lay guilty of four more charges of bank fraud in connection with Lay's bench trial over his self-admitted violation of Regulation U in using bank lines of credit improperly in buying stock in publicly-owned companies. Former Enron CEO Jeff Skilling was convicted on 18 counts of conspiracy and securities fraud, but the jury convicted Skilling on only one of ten counts of insider trading, prompting Larry Ribstein to ask "does this mean that the jury thought he didn't know enough about what was happening to bar him from trading, but that he did know enough to go to jail for fraud?"

Ah, the vicissitudes of criminalizing corporate agency costs.

Most followers of the case agree that the jury's verdict is not particularly surprising. As noted here many times during the trial, the Enron Task Force prosecutors did an effective job of presenting a fundamentally weak case against Lay and Skilling, emphasizing time and time again the real presumption upon which the Task Force's entire legacy case was based -- that Lay and Skilling are rich and Enron collapsed, so they must be guilty of something in connection with Enron's descent into bankruptcy. Despite the transparent nature of that presumption, the harsh reality of defending wealthy business executives is that most jurors are just ordinary folks with nominal experience in complex business matters who readily accept such a presumption. That presumption -- coupled with an overwhelming public bias, particularly in Houston, against anything having to do with Enron -- was in the end simply too much for Lay and Skilling to overcome.

Although I did not attend nearly as much of the trial as many other observors, I read the entire trial transcript, so I have a reasonably good understanding of the testimony and the evidence. It's always a hard call to say when a case as long and arduous as this one may have turned in favor of the prosecution, particularly given the probability that the leaders on the jury were predisposed in favor of the Task Force's case from the beginning. However, my sense is that the Lay-Skilling defense was in reasonably good shape after completion of the Task Force's case-in-chief -- there had been no defining moment during that presentation that would have appeared to compel the jury to convict. Even as late in the trial as completion of Skilling's testimony during presentation of the defense's case, no one incident had occurred that appeared to undermine either side's position in the trial.

However, if there was a defining moment in the trial that sealed the defendants' fate, then it likely came in Week Fourteen during Task Force prosecutor John Hueston's cross-examination of Lay over the use of his company line of credit. Although Lay's line of credit was legal and the company disclosed his use of it in accordance with applicable law, Lay's repayment of the large draws on the line with Enron stock at a time when he was encouraging employees and the market to buy company stock was an apparent contradiction that the jurors could easily grasp.

Similarly, Lay's decision to draw down $1 million on the line five days before Enron's bankruptcy was a disastrous decision for the defense. Although done on advice of counsel, Lay's last-minute draw as the company was sinking into insolvency looked so bad that reference to that testimony by leaders of the jury during deliberations was probably enough to seal any wavering non-leader juror's view on whether to convict. If I'm right on that speculation, then one of the most fascinating "wonder if's" of this trial is whether Skilling would have done better had Lay's motion for a separate trial early in the case been granted rather than denied?

More time for reflection is needed before the true impact of this trial on business interests can be properly assessed, but the initial signs are not good. Beyond the waste involved in such prosecutions, it's hard to fathom how any CEO of a publicly-owned corporation after Lay-Skilling could feel comfortable about doing anything more than making the most banal public statements about the CEO's company. Indeed, little incentive exists for a CEO to say anything publicly about the CEO's company at this point other than "everything you need to know is in our regulatory filings, so go read those." The Lay-Skilling saga will quite likely represent yet another disincentive for business executives running emerging businesses to tap public equity markets, while another quite probable effect is to reduce the supply of innovative business executives who will be willing to take on the increasingly risky CEO position in a publicly-owned company at all. Given that none of that is good for the health of public equity markets, those are decidedly incongruous results for a prosecution that was supposedly premised on protecting investors in those markets.

Even more troubling for business interests is the disingenuous nature of the Task Force's theory of the case against Lay and Skilling. The Task Force pitched the case to the jurors as one in which Lay and Skilling misled unsuspecting investors by touting Enron during a period in which it was a much more troubled than they were really letting on. As Jeff Matthews pointed out during the trial, since when did it become a crime in America for business executives to be overly optimistic about their company?

Any investor who did who did any meaningful investigation of Enron over the final half-decade of its existence easily discovered that the company was a relatively highly-leveraged but innovative business with a low credit rating that was experiencing explosive growth in its trading operation. As such, it was never anything more than a speculative play for investors and, as such, one that should have been hedged. Jim Johnston of the Heartland Institute noted the same thing recently in this post:

[Investors in Enron stock] should have hedged their risk exposure. If they did not, they were like motorists who have accidents while driving without automobile insurance. We generally do not feel sorry for those people. Moreover, not being hedged is an indicator that those folks did not understand Enron’s basic business model and therefore did not deserve the run up in Enron’s stock price in 2000 and 2001. They gambled. For a while they won, but eventually lost. This is hardly any different from going to Las Vegas. Except, the federal government is not being asked to prosecute the casinos for fraud.

Stephen Bainbridge noted a similar dynamic in his initial blog post on the verdict:

One of the curious things about this case is the documented evidence that "a number of people were contradicting Enron's own rosy view of itself long before the middle of 2001." At what point does a lie by top management cease to matter if the market doesn't believe it? Presumably the government convinced the jury that people believed the lies Skilling and Lay told, but did the market really do so?

In short, the Task Force presented the jury with the convenient Enron morality play that has become so engrained in the American psyche over the past five years rather than the more nuanced truth. The morality play is easier to tell and understand, but the truth is much more likely to result in justice.

As far as appeal points go, there are a couple of obvious grounds. The first is Judge Lake's denial of the Lay-Skilling defense team's repeated motions to change the venue of the trial from Houston. Although that issue will be determined on appeal under the formidable abuse-of-discretion standard, the Lay-Skilling team will still be able to mount compelling evidence of five years of relentlessly negative local media reporting on Enron, Lay and Skilling, as well as pre-trial polling showing a jury pool that was overwhelmingly predisposed to believe that Lay and Skilling must have done something wrong. Even during the trial, the Houston Chronicle -- which did a commendable job of blending traditional news reporting with blogs in providing a trendsetting framework for covering an important news event -- featured its lead business columnist on its online Enron news page, who regularly mocked Lay and Skilling in blog posts and columns. If there ever was a case that begged for a change of venue, then this was it.

But the second obvious appeal point is the most troubling aspect of the entire case -- the Task Force's unprecedented designation of over 100 former Enron executives as unindicted co-conspirators with Lay and Skilling. Never before has such a wide-ranging conspiracy been alleged in a federal prosecution, and the transparent Task Force motive for doing so became apparent as the prosecution essentially punted on presenting any meaningful case involving a conspiracy of those unindicted co-conspirators during the trial.

The massive unindicted co-conspirator designation was vitally important to the Task Force's prosecution for two reasons. First, as noted in this post early in the trial, the designation allowed the Task Force to introduce hearsay statements of those unindicted co-conspirators through the testimony of the Task Force's cooperating witnesses. The Task Force elicited such hearsay statements from its cooperating witnesses frequently during the trial.

But even more importantly, the designation of unindicted co-conspirators effectively precluded dozens of former Enron executives with exculpatory testimony for Lay and Skilling from disputing those hearsay statements or even testifying in the trial because of the threat that a waiver of the Fifth Amendment privilege against self-incrimination would likely lead to criminal charges against such a witness if he or she were to testify contrary to the Task Force's theory of the case. As noted in this earlier post, the Task Force has used that dubious tactic in each of its Enron-related prosecutions and -- as with the other cases -- the impact on the Lay-Skilling trial cannot be underestimated.

The Task Force presented the jury with testimony against Lay and Skilling from around 15 or so cooperating witnesses who were former Enron executives. Inasmuch as the Lay-Skilling defense was hamstrung from calling former Enron executives who would have provided exculpatory testimony for the defendants, the jury could have reasonably concluded that the testimony of the former Enron executives who were cooperating with the Task Force was credible because that testimony was not counterbalanced with exculpatory testimony from other Enron executives. For example, what would the impact have been on this jury if several former Enron executives had testified that key Task Force witness Ben Glisan had repeatedly lied during his testimony? At least one juror in post-trial comments noted that the jury relied heavily on Glisan's testimony against Lay and Skilling. Would that reliance have been as great had Glisan's testimony been challenged by not just the defendants, but numerous other -- and potentially more credible -- former Enron executives?

As noted in last week's weekly post, reasonable people can differ over the issue of whether criminalizing corporate agency costs is sound public policy. However, there is simply no serious question that the Task Force’s effective preclusion of exculpatory testimony for Lay and Skilling from this trial is a serious affront to the principles of justice and the rule of law upon which our criminal justice system is based. As Sir Thomas More reminds us, "do you really think you could stand upright in the winds that would blow" if such a prosecution tactic were turned on you?

The parties and their attorneys in this titanic struggle now take a well-deserved breather for a couple of months until the sentencing hearing in early September, a week or so after Labor Day. Prosecutors Sean Berkowitz, Hueston and Kathy Ruemmler all performed effectively during the trial and carved a path for further success within either the Justice Department or a more lucrative job in private practice. On the defense side, lead Skilling attorney Daniel Petrocelli and his entire O'Melveny & Myers team were brilliant in defeat, and Lay attorney Mac Secrest did an admirable job under extremely adverse circumstances in picking up a substantial part of the Lay defense when Mike Ramsey was incapacitated by health problems during the trial. On the bench, Judge Lake was his usual steady presence in handling the unwieldly case and he now becomes the focal point as the case turns to its sentencing phase.

While operating under mandatory sentencing guidelines, Judge Lake was reportedly not pleased with what he considered to be his obligation to sentence former Dynegy mid-level executive Jamie Olis to a draconian 24-year prison sentence. Shortly thereafter, U.S. District Judge Ewing Werlein rejected Task Force calls for severe 15-year sentences against the four Merrill Lynch executives who were convicted in the currently unraveling Nigerian Barge case, and Judge Lake will almost certainly be confronted with Task Force requests for even longer sentences against the 64-year-old Lay and the 52-year-old Skilling. Nevertheless, the sentencing guidelines are no longer mandatory, so Judge Lake will have more flexibility in fashioning punishment for the two men than he previously believed that he had in the Olis case. In thinking about what Judge Lake ought to do in this case, I cannot improve on Larry Ribstein's observation in concluding his post on the Lay-Skilling verdict:

Many people think that there was so much loss associated Enron that the guys at the center of it must have been villains. But they weren't villains. The jury is saying they weren't even insider traders, as if that would have made a difference. They lost as much as anybody, and that's what drove them to lie, if they did lie. This doesn't make them saints, but it should make even the most hardcore antibusiness types queasy with the denouement of this tragedy. Locking these guys up for pretty much the rest of their adult lives for being unable to face the fact that their dream had ended is not the way a civilized society would deal with this case.

Speaking of that supposedly civilized society, amidst the media barrage over the Lay-Skilling verdict, two men and their families in a much different Enron-related case cling to the faint hope that the jury in that case can ignore the rabble and render a fair verdict. A faint hope indeed.

Posted by Tom at 4:00 AM | Comments (26) | TrackBack (1)

May 25, 2006

Oh, Canada!

This video puts to bed any question of whether "Oh, Canada" is the most stirring national anthem regularly played at a sporting event.

With that kind of inspiration, it's no surprise that the Edmonton Oilers are running away with the NHL Western Conference Finals series with the Mighty Ducks.

Hat tip to Eric McErlain for the link.

Posted by Tom at 8:12 AM | Comments (4) | TrackBack (0)

Thinking about heroin addiction

Theodore Dalrymple -- the pen name of British psychiatrist and author, Anthony Daniels (previous posts here) -- has written a new book, Romancing Opiates: Pharmacological Lies and the Addiction Bureaucracy (Encounter 2006) in which he challenges the conventional medical wisdom regarding opium addition. In this Wall Street Journal ($) op-ed, Dalrymple provides interesting insight into the nature of addiction:

I have witnessed thousands of addicts withdraw; and, notwithstanding the histrionic displays of suffering, provoked by the presence of someone in a position to prescribe substitute opiates, and which cease when that person is no longer present, I have never had any reason to fear for their safety from the effects of withdrawal. It is well known that addicts present themselves differently according to whether they are speaking to doctors or fellow addicts. In front of doctors, they will emphasize their suffering; but among themselves, they will talk about where to get the best and cheapest heroin.

When, unbeknown to them, I have observed addicts before they entered my office, they were cheerful; in my office, they doubled up in pain and claimed never to have experienced suffering like it, threatening suicide unless I gave them what they wanted. When refused, they often turned abusive, but a few laughed and confessed that it had been worth a try. Somehow, doctors -- most of whom have had similar experiences -- never draw the appropriate conclusion from all of this. Insofar as there is a causative relation between criminality and opiate addiction, it is more likely that a criminal tendency causes addiction than that addiction causes criminality.

Furthermore, I discovered in the prison in which I worked that 67% of heroin addicts had been imprisoned before they ever took heroin. Since only one in 20 crimes in Britain leads to a conviction, and since most first-time prisoners have been convicted 10 times before they are ever imprisoned, it is safe to assume that most heroin addicts were confirmed and habitual criminals before they ever took heroin. In other words, whatever caused them to commit crimes in all probability caused them also to take heroin: perhaps an adversarial stance to the world caused by the emotional, spiritual, cultural and intellectual vacuity of their lives.

It is not true either that addicts cannot give up without the help of an apparatus of medical and paramedical care. Thousands of American servicemen returning from Vietnam, where they had addicted themselves to heroin, gave up on their return home without any assistance whatsoever. And in China, millions of Chinese addicts gave up with only minimal help: Mao Tse-Tung's credible offer to shoot them if they did not. There is thus no question that Mao was the greatest drug-addiction therapist in history.

Substitution of one drug for another is at best equivocal as a means of treating drug addicts. No doubt if you gave every burglar $10 million, each would burgle far less in the future; but this treatment of the disease of burglary would scarcely discourage burglary as a social, or rather antisocial, phenomenon. And the fact that there would be a dose-response relationship between the amount of money given to burglars and the number of burglaries they subsequently committed does not establish burglary as a real disease or money as a real treatment for it.

Why has the orthodox view swept all before it? . . . [A]ddicts and therapists have a vested interest in the orthodox view. Addicts want to place the responsibility for their plight elsewhere, and the orthodox view is the very raison d'être of the therapists. Finally, as a society, we are always on the lookout for a category of victims upon whom to expend our virtuous, which is to say conspicuous, compassion. Contrary to the orthodoxy, drug addiction is a matter of morals, which is why threats such as Mao's, and experiences such as religious conversion, are so often effective in "curing" addicts.

Posted by Tom at 6:18 AM | Comments (1) | TrackBack (0)

Remember the NBA?

Once upon a time seemingly long ago, the Houston Rockets were the most popular professional sports franchise in Houston. However, after nine straight seasons of not winning a playoff series, and while watching its Texas competitors -- the San Antonio Spurs and the Dallas Mavericks -- ascend to NBA elite teams, the Rockets have become an expensive joke on the local sports scene. That's particularly unfortunate because, as Bill Simmons notes here, this season's NBA Playoffs have been highly entertaining.

Meanwhile, this NY Times article profiles mercurial Mavericks owner Mark Cuban, who has steered the Mavs to the NBA Western Conference Finals this season and has the club primed to make multiple runs at an NBA Championship over the next several seasons. Inasmuch as only three Rockets players (Yao Ming, Tracy McGrady and perhaps Luther Head) have sufficient ability even to play for the current Mavericks team, Cuban's rebuilding of the Mavericks' personnel -- as well as the Phoenix Suns making the Western Conference Finals this season despite the absence of the club's best player -- are powerful reminders of the poor personnel decisions that the Rockets have made over the past decade. One can only wonder why it took Rockets owner Les Alexander so long to do something about it?

On the NBA in general, Malcolm Gladwell, he of Tipping Point fame, has authored this interesting New Yorker review of the new book, The Wages of Wins: Taking Measure of the Many Myths in Modern Sport by three economics professors, David Berri, Martin Schmidt, and Stacey Brook. In this related blog post, the authors summarize their research about decision-making in the NBA as follows:

Payroll does not explain much of wins in the NBA, MLB, or NFL. Specifically, payroll only explains 12% of the variation in wins in the NBA. In baseball explanatory power is 18% while in the NFL it is below 5%.

We think the low explanatory power of payroll in baseball and football can at least partially be explained by the relative inconsistency of performance in these sports. As we note in our book, across time in baseball and football we see fairly wide variations in player productivity. After all, who expected the Detroit Tigers to be so good this year?

Relative to these sports, though, performance in the NBA is more consistent. So why is payroll still unable to explain much of wins?

We think the answer lies in how players are evaluated in the NBA. For more than two decades economists have looked at the link between player salary and various performance statistics. Scoring totals are the only player statistic that consistently explains player pay. Shooting efficiency, rebounds, steals, and turnovers do not consistently offer much explanatory power. We updated these studies in our book. Our story, though, was essentially the same. Scoring totals are the one statistic that matters most in determining player pay.

How much players are paid is not the only decision economists have examined. Ha Hoang and Dan Rascher published a study in Industrial Relations in 1999. The Hoang and Rascher study looked at the factors that caused a player to be cut from an NBA roster. The only player statistic these researchers found to matter was scoring. All other player statistics did not matter.

We have looked at the coaches voting for the All-Rookie team and the factors that impact where a college player is drafted. What matters most? Again, scoring matters more than factors associated with getting possession of the ball (i.e. rebounds, turnovers, and steals).

Wins in the NBA, though, are not just about scoring. Possession factors have a large impact on the outcomes we observe in the NBA. When you look at all the statistics the NBA tracks you find that with these you can explain 95% of the variation in wins. And when you look at all these statistics you find that you can create a very accurate estimate of the wins each player produces.

The authors then conclude:

Conventional wisdom in basketball is incorrect. Players who only score are not as valuable as people think. Players who do not score much — like Ben Wallace and Dennis Rodman – have a bigger impact on team wins than people seem to think.

Does this fit what many people believe about the NBA? No, but as academic research often indicates, what people believe does not always match what the data says.

Posted by Tom at 4:44 AM | Comments (1) | TrackBack (0)

The latest troubled PGA Tour event in Texas

First, it was the Shell Houston Open reeling from the consequences of some dubious decisions.

Then, a change of date and a mediocre golf course is generating concern over the future of Dallas' EDS Byron Nelson Open.

Now, this Kevin Sherrington/Dallas Morning News column (free registration required) notes that the best Tour players are turning their backs on the venerable Colonial Invitational in Ft. Worth and the tournament is losing its title sponsor to boot.

And, just to remind, San Antonio's Texas Open is played in October, smack dab in the middle of football season.

Does anyone with PGA Tour management notice or care that the Tour's Texas tournaments are quickly becoming afterthoughts?

In the meantime, this Alistair Tait column about Darren Clarke's costly example of sportsmanship at the recent Irish Open reminds us of one of the big reasons that golf is such a special game.

Posted by Tom at 4:22 AM | Comments (0) | TrackBack (0)

May 24, 2006

Rethinking H-P's merger with Compaq

The Wall Street Journal's Alan Murray is rethinking the conventional wisdom with regard to Hewlett-Packard's much-criticized 2002 acquisition of Houston-based Compaq Computer Company that many believe cost former HP CEO Carly Fiorina her job:

At a meeting of H-P's board not long ago, Chief Financial Officer Robert Wayman did a retrospective look at the merger. The results were so compelling that even some board members were stunned, some attendees say.

At the time of the merger in 2001, the company set three broad goals: to strengthen its market position, to improve its competitiveness and to increase shareholder value.

H-P was in third place in the personal-computer market in 2001 and posting losses. Today, it is a strong second, breathing down Dell's neck for the lead and posting profits -- though still not as much as it would like. In the industry standard computer-server business, H-P was then in fourth place and bleeding red. Today it is No. 1 and nicely profitable.

On competitiveness, the company's total operating expenses came to 21.5% of revenue back in 2001. Today, that is down to about 16% -- and all but one percentage point of the decline happened before [current H-P CEO] Mark Hurd's cost-cutting campaign took hold.

As for shareholder value -- well, at the time Ms. Fiorina left office, there was little to boast about. But recently, H-P has surpassed all of its rivals. Total return to shareholders since the merger has been almost 50%. Dell has been almost flat in the same period, while IBM shareholders have lost substantial sums of money.

So, did the H-P Board unjustly can Carly now that her vision is being vindicated? Murray notes that the story is more complicated than that:

The truth is that H-P's board members never completely lost faith in the merger -- after all, many of them had been a party to it. They just lost faith in Carly. She created a matrix-management structure they couldn't understand and muddled lines of reporting that made it difficult to hold anyone responsible. She concentrated too much power in her own office, and then took to the road making speeches and wasn't there when decisions needed to be made. Perhaps most importantly, she was disdainful of the board's efforts to change her ways.

It is difficult to find anyone involved with H-P today -- board member, shareholder, employee, customer, analyst -- who isn't happy that Ms. Fiorina is gone and that Mr. Hurd has taken her place. He is everything she wasn't. He dives deep into operations, is in love with the metrics and out of love with the media. He disdains vision; he is all about execution. [. . .]

H-P's directors went through hell together. In the end, they got the best of both worlds -- a charismatic CEO who brought about a hotly contested but transformational merger, and a no-nonsense, operations-oriented CEO determined to make the combined company work.

Read the entire column.

Posted by Tom at 6:00 AM | Comments (0) | TrackBack (0)

Toyota v. GM, Texas style

Texas is a big business battlefield in the automobile wars, and this excellent Lee Hawkins Jr. - Norihiko Shirouzu/WSJ ($) article reviews the competive advantages that Toyota Motor Corp. enjoys in building trucks in its new San Antonio manufacturing facility over General Motors Corp's reliance on its 50 year-old Arlington manufacturing facility. Not only does Toyota enjoy the advantages of newer equipment and more expansion room at its facility in comparison to the landlocked GM plant, a brief review of the cost structure of the two plants speaks volumes about GM's current problems:

Two decades ago, GM factories suffered from a sizable gap compared with similar Toyota factories, as measured in the number of hours it takes workers to build a vehicle. Recent Harbour surveys show that this gap has narrowed substantially. But GM's productivity gains are offset by higher hourly labor costs and the burden it carries for benefits owed to retirees.

In Arlington, GM pays union-scale wages of $26.50 to $30.50 an hour to its 2,800 hourly workers there. On average, GM pays $81.18 an hour in wages and benefits to U.S. hourly workers, including pension and retiree medical costs. At that rate, labor costs per vehicle at Arlington are about $1,800, based on the Harbour Consulting estimate of labor hours per vehicle.

In San Antonio, Toyota will use non-union labor and will start its 1,600 hourly workers at $15.50 to $20.33 per hour, which will grow after three years to $21 to $25. Harbour Consulting President Ron Harbour estimates Toyota's total hourly U.S. labor costs, with benefits, at about $35 an hour -- less than half of GM's rates. The brand-new plant won't have any direct retiree costs for many years. So if the San Antonio factory does no better than match the Arlington plant in productivity, it could still enjoy a labor cost advantage of about $1,000 per vehicle, a substantial sum in industry terms. That's money Toyota could translate into extra standard features -- such as stability control -- that could make its trucks more appealing.

Read the entire article. Despite GM's troubles, the company can still produce a pretty slick commercial.

Posted by Tom at 5:31 AM | Comments (2) | TrackBack (0)

Lloyd Bentsen, R.I.P.

Former WWII hero, Texas senator, Dukakis Vice-Presidential candidate and Clinton Administration Treasury Secretary Lloyd Bentsen died Tuesday in Houston. He was 85 at the time of death and had been largely out of the public eye for the past seven years or so after suffering a stroke. The Houston Chronicle story on his life is here.

Bentsen was a genuinely charming man and successful businessman who often seemed somewhat out of place in the dog-eat-dog world of politics in Texas and Washington. His political mentor was former legendary House speaker, Sam Rayburn, but Bentsen was not particularly close to the other Texas political icon of the 1950's and 60's, former President Lyndon B. Johnson. Most of Bentsen's political career occurred after Johnson had left office.

Bentsen was a member of the traditional part of the Texas Democratic Party that dominated Texas politics for over a century after Reconstruction, and he re-entered politics in the early 1970's to run against the standard-bearer of the more liberal faction of the party, Ralph Yarborough. Thus, Bentsen often sided with Republicans in political decisions, although he resisted the temptation to switch to the Republican Party as his Texas Democratic Party contemporary, former Texas Governor John Connally, did in the early 1970's.

Bentsen's popularity in Texas is perhaps best reflected by the fact that he won the 1988 Senate race by a large margin despite the fact that the Dukakis-Bentsen Presidential ticket lost the state to the Bush-Quayle ticket. Although Bentsen was able to help stem the demise of the Texas Democratic Party for a couple of decades, he and others in his faction of the party ultimately lost the war as the Republican Party began dominating Texas politics about the time that Bentsen retired from politics in 1994. After his retirement, Bentsen prepared an oral autobiography of his political and business career, which will remain confidential for five years after the date of his death.

A memorial service for Bentsen is tentatively scheduled for next Tuesday at First Presbyterian Church in Houston after a private graveside service at Forest Park Lawndale Cemetery.

Posted by Tom at 4:32 AM | Comments (7) | TrackBack (0)

May 23, 2006

Jamie Olis' nightmare continues

The ever-alert Doug Berman notes that, in an expected decision, the Fifth Circuit Court of Appeals has denied Jamie Olis' appeal of U.S. District Judge Sim Lake's denial of Olis' motion for release pending the Judge's re-sentencing of Olis after the Fifth Circuit late last year reversed Olis' original 24-year sentence and ordered re-sentencing. Although yet another unfortunate decision for Olis and his family, the Fifth Circuit traditionally defers to the trial judge in regard to such matters, particularly when the judge is as well-regarded as Judge Lake.

Judge Lake has scheduled a status conference in regard to Olis' resentencing for June 9th as the Justice Department continues to drag its feet in regard to the re-sentencing hearing. With the Lay-Skilling case finally coming to a close, my sense is that Judge Lake will use that conference to put the Olis resentencing on a fast track.

Posted by Tom at 8:35 AM | Comments (0) | TrackBack (0)

More on the Barbaro injury

My bright niece, Marianne Kirkendall, is entering her final year as a graduate student in veterinary medicine at Iowa State University in Ames. As you might expect, Marianne -- who has always loved horses -- is all over Kentucky Derby winner Barbaro's horrific leg injury, so she passes along this fascinating Barbaro website page for the New Bolton Center, which is the University of Pennsylvania facility where Barbaro's injury is being treated and one of the premier equine clinics in the country (a NY Times article on the same subject is here). Marianne comments on Barbaro's surgery:

The top picture on the left shows them lifting Barbaro out of the recovery pool. Equine surgery is obviously made very difficult given the size of horses, and their "flighty" nature. Cranes are used to lift them on and off of surgery tables. I've gotten to help with several surgeries, and the induction and recovery from anesthesia can get every bit as complicated (and even more exciting!) as the surgery itself!

Most equine hospitals recover horses by putting them into a dark, padded stall and using a tail rope to help them get up when they are ready. The anesthesiologist literally sits with the horse until they start trying to get up, then must leap out of the stall to avoid the commonly flailing hooves! Unfortunately, horses recovering from anesthesia sometimes break their legs as they wake up and try to stand before they are ready. This pool technique is a newer method of recovery that only a few clinics have as yet, but is really neat! Cool to see it in action!

Posted by Tom at 7:47 AM | Comments (0) | TrackBack (0)

More on the corporate crime lottery

Amidst an overwhelmingly negative media drumbeat, former Enron executives Ken Lay and Jeff Skilling await a jury verdict that could send them to prison for most of the rest of their lives. Meanwhile, in Amsterdam, such matters are handled a bit differently:

The executives in charge of the Dutch retailer Royal Ahold when it plunged into a financial scandal were convicted of fraud on Monday but were sentenced to a fine and no prison time, as judges found they bore little criminal guilt.

The former chief executive, Cees van der Hoeven, and the former chief financial officer, Michiel Meurs, were fined 225,000 euros ($288,000) each and they were given nine-month suspended sentences.

The verdict comes more than three years after Ahold — which operates grocery stores around the world, including the Stop & Shop and Giant chains — went to the brink of bankruptcy in February 2003.

An earlier post on the Royal Ahold case is here.

Meanwhile, if the prospect of fairness for Lay and Skilling is simply too difficult to fathom, then how do you square the resolution of the Ahold case with that of this case, this case, or this one?

So it goes as an unattractive cauldron of resentment towards business and wealth continues to produce the lottery-style results of prosecuting corporate crime in America.

Posted by Tom at 7:11 AM | Comments (0) | TrackBack (0)